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Posted on August 17, 2016 by David Vines

The Most Common Subscription-Based Digital Media Revenue Models

One of the most popular trends for companies over the last 10 years has been to implement a subscription-based model for some or all of their products and services. While most of us are familiar with at least one of the major subscription-based companies in the digital media realm, many of us have not stopped to think about the number of different revenue models that are represented in the market for these kinds of subscription services.

Subscription services have taken off in the industry over the last decade and investors place a high value on companies that implement subscription services. If you are thinking about implementing a subscription-based digital media revenue model for your own online business, take a look over some of the most common subscription styles on the market today:

The “Freemium” Model

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One of the most prominent examples of the “freemium” model of subscription services today is found at Hulu. Hulu offers two basic service packages to their members. The first is the free, ad-supported version, which offers limited content on a delayed schedule that is supported by the presence of ads during playback. The second option for subscribers is to pay a regular monthly fee that will allow them to access more content on demand, avoid ads, and to view content with a more rapid release schedule.

The term “freemium” comes from a mixture of free and premium services offered to members. It is unique in that it allows customers to experience limited access to the kinds of content offered by the provider without putting down money upfront. While Hulu is the company most often associated with this model, YouTube has also recently released a similar subscription-based plan.

The benefit of this model is that it can build trust in potential customers by allowing them to explore content before paying for it. It affords flexibility in income streams, with some income coming from advertisers and others from paid subscribers. It also allows the customers to feel like they have a greater degree of choice in deciding whether or not they want to begin a paid subscription or to watch ads during their content.

The primary drawback of the freemium model is that the premium package must be designed in a way that adds significant value to the user; otherwise, companies can end up not having enough premium users to support the model. However, companies like Hulu, and even YouTube, have gotten around this by intentionally partnering with advertisers who sponsor free content, removing the burden for non-paying customers from resting solely on the digital media company itself.

The Media Lines Model

The media lines model is an interesting recent addition to the subscription-based marketing style used by companies. The most well-known digital media provider that is currently employing this strategy is Playster, a company that offers a wide variety of media types, including audiobooks, music, television shows, and movies.

The basic idea behind the media lines model is that a company offers multiple types of media, which can be packaged together or separately in a subscription plan. It is not unlike the bundled offers available from home phone and Internet providers.

One of the strengths that is unique to the media lines model is that it makes it easy for customers to start with one kind of media and gain trust in the company, expanding their subscription plan over time. It also allows companies that offer digital media to attract customers from multiple niches, rather than resting solely on a single type of digital media.

The drawback to the media lines plan is that it requires familiarity with a wide variety of content types and the ability to support multiple media databases. However, companies can overcome this by adding in additional lines of media over time and starting with small libraries in each new media database, offering lower costs for that particular media line until libraries are expanded.

The Varied Access Model

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The varied access model is based on the idea of providing different levels of content access for subscribers based on their subscription plan. This model was first introduced by Netflix, who used it with their initial DVD plan. Users could sign up for the base plan, which included one DVD out at a time, or upgrade their plan to include two or three DVDs out at once.

In the digital media realm, this can be seen in companies that offer a particular number of song downloads each month, access to a particular number of books or television episodes, or limit the data associated with a user based on their subscription plan.

The best thing about the varied access model is that it allows a digital media company to accommodate both casual and high-access users, charging each accordingly for their subscription needs. Additionally, it gives the users themselves a high degree of flexibility in changing their subscription plan from one month to the next, based on their needs for that month.

Varied access models also offer the ability for companies to change their pricing strategies more easily. By introducing additional tiers based on customer metrics, companies can expand the number of subscription types available more rapidly than they may be able to do through other subscription types. Additionally, this provides a way to scale the subscription plans more effectively over time.

Flexibility in pricing structures can give companies the freedom that they need to adjust to conditions in the marketplace. For example, if the cost to host the database of digital media goes up significantly, it is very easy for companies that use the varied access model to update their price structure accordingly on a single level of access without negatively impacting all their customers.

So, really, there aren’t very many drawbacks to the varied access model, making it one of the best models for companies to start with. As long as companies have strategically created their tiers, this model can be very effective. However, companies that have too large of a gap between their tiers may make it hard for customers to commit to higher levels of access and payment.

The Partnership Model

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The partnership model is primarily associated with Amazon Prime services. The basic idea behind this model is that digital content is packaged with non-digital content or services as a subscription. This is an all-access model, in which users pay a particular fee for use of the services for a specific period of time. In the case of Amazon, users pay once a year for full access to faster shipping and access to digital media content like books, movies, and television episodes.

While this kind of model does not represent a pure digital media subscription, it does provide a unique way for companies to enter the digital media subscription realm. It can also be used to add value to an existing package of services. The partnership model is especially powerful for companies that are already successful in a given industry, but would like to begin to offer digital media content, as well. It offers the room to experiment with new services and analyze consumer interest.

The biggest drawback to this type of subscription model is that it can create a situation in which a company is overextended, trying to package too many pieces together. When this happens, customers who are only interested in one or two aspects of the package may find it too expensive to purchase a subscription when they won’t be using the full value of the services included.

Few companies have explored this kind of subscription package, simply because they are difficult to do well. However, for companies that want to provide a specific set of services or products that meet the needs of their customers as a whole, the partnership model can be a way to become involved in multiple aspects of a customer’s day-to-day life, increasing brand trust and impact.

Asking the Right Questions to Determine the Most Effective Model for Your Organization

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If you are interested in introducing a digital media subscription-based plan for your users, there are a couple of questions you can ask that can help you to determine what model might work best for your specific organization:

  • What is our primary service or product offered? If you have an existing company and are thinking about expanding the services that you offer, you may want to start off with a partnership model plan so that you can offer your new content to existing users in a package for a period of time. This is a great option for companies that have physical services or products and want to begin to offer digital content, as well. Netflix employed this strategy with their streaming media for a period of time, allowing them to gauge the interest of their customers in the streaming services before splitting their streaming plans from their physical media plans. Because of the controlled timing of their split, they were able to achieve massive growth for their streaming media in a short window of time.
  • What kinds of users will your subscription plans cater to? If you believe that customers will access your content in varied tiers, with some accessing it often and others accessing it more casually, you may want to look into the varied access model, which will allow you to market to each kind of user in a way that will meet their needs. This is a great plan if you have power users who will be accessing your content, as well as casual users.
  • What kinds of digital media will my company offer? If you have plans to deal with multiple kinds of digital media, the media lines model could be the most effective solution for you. This model can provide a way for companies to expand their offerings over time, both in terms of the types of media provided and the number of items included in each library. Alternatively, companies that want to specialize in one particular form of digital media would be better served with one of the other digital media subscription forms, unless they plan to partner with other companies and offer exclusive packages that include services or products from both companies at a single subscription price.
  • Is my company willing to get creative in income streams? The freemium model allows companies to benefit from two different income streams, the first supported by advertisers and the second by users who want increased access. This option can provide flexibility in the ability to lean heavier on promoting subscription plans or seeking relationships with advertisers, depending on the current strengths and status of the digital media company.

One of the best things about subscription-based revenue models is that they can be adapted over time. Companies that start out with one model do not have to be committed to it forever. In some cases, adapting the models used to accommodate changes in the marketplace has helped make it possible for many companies to thrive in conditions that would have otherwise hurt their bottom line.

In any case, subscription-based revenue models are a powerful tool for companies in the digital media marketplace, in particular. These models create a steady stream of income from recurring customers, which is a powerful tool in the growth of any business. From Netflix to Amazon, some of the largest and most profitable companies in the industry today can attribute their success to the use of these models in a creative and innovative fashion.

Subscription packages can be highly customized to the needs of a company and the needs of their customers, allowing businesses to be more flexible than ever before while benefitting from recurrent revenue. In short, subscription-based revenue models have energized the industry and are certain to be implemented in fresh ways in years to come.

David Vines

About the author

Posted on August 17, 2016 by David Vines

David is in charge of partnerships at Uscreen, he also contributes to the Uscreen Video Distribution blog. He holds a B.S. in Information Systems and is well versed in technology and marketing. He strives on building relationships & long term connections. David also holds a passion for flying single proper airplanes.

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